Exchange Invest Weekly Podcast 025

Transcript

One little Clearinghouse goes to market. One small interest rate platform gets re-funded. Welcome to the Exchange Invest Weekly with me Patrick L Young

This week in the bourse business, CBOE, formerly the Chicago Board Options Exchange (now calling themselves Global Markets although they really sort of transatlantic markets, but anyway…) their European arm has agreed to acquire the European equities Clearinghouse Euro CCP. Was this an aggressive bid or was it simply the opportunity to rescue something that was at death's door? Certainly given the fact that Euronext seem to have taken a significant mark down on the sale of their stake, which they've only had for a couple of years, it looks as if it was somewhat of the latter... CBOE get to secure the clearing franchise for their equities trading, which must be quite useful within the European marketplace, although a few analysts were getting rather overwrought with the concept that this would somehow rather allow them to jump easily and expeditiously into the world of clearing equity options and derivatives. In the small step for mankind, this is definitely a giant leap altogether. At the same time. Interesting to note, David Howson, the incoming CEO was quoted on the press releases with no mention of outgoing CEO Mark Hemsley, who's clearly already left the building, attained unperson starters, or at least retired. Full points there to Sam Agini of Financial News, he was the man who brought us the news of this little deal as a scoop via his excellent columns.

Meanwhile, elsewhere in deals Curve Global, ‘the little interest rate platform that can’ continues to be growing, innovating, building momentum, and indeed has got another $20 million in funding to match the 20 million it got last year. Actually, I digress. It was 20 million pounds and funding even better given the fact to the strength of the pound during the course of the last day or so, as this podcast was going to pixel on the basis that indeed, the Brexit deal seems to be assured and therefore the pound was roaring thanks to the reelection of the Boris Johnson government with a stonking majority. However, back to Curve Global: interesting platform. They have produced a credible product base. It's still far from mature, but it's building its niche and endeavoring to do the right thing serving clients. It's a good thing it helps keeping the market competitive for clients all around. And it'll be interesting to see how they fare during the course of 2021. When of course, I-bors are supposed to be dying, nobody is quite sure what shape the new Pokemon of interest rates will be. Meanwhile, over at Refinitiv which is of course in the process of being acquired by the parent group of Curve Global none other than the London Stock Exchange Group, representatives are looking to slash the costs on their borrowing.

They've got US dollar 6.45 billion of loans. Just after the record buyout. It's actually only one year of Well, it's very simple: it's effectively a balance sheet arb but given the LSE is in a rather healthy financial position overall investors are basically much more relaxed and therefore willing to pay a lower coupon for. As one investor put it, and I quote,

“Investors view Refinitiv as a much better credit given the announcement from the LSE. A lot of the concerns around the financing from Blackstone have settled too. The concerns are not the business, but the loan documents, sponsor risk and high leverage.”

In other news about Refinitiv, the South China Morning Post broke the news that actually Refinitiv apparently have filters on the desktop, which keeps Hong Kong unrest news away from mainland Chinese customers. Fake News. Well, no rather a big fat Great Wall precluding you from knowing what's going on.

Direct listings y'all remember last week we were ecstatic. The news that New York Stock Exchange were leading the way sending a proposal on US direct listings. Well, the week started rather annoyingly, it seemed, with a refusal and an instant rejection It seemed early in the week therefore, that the SEC was blindly following a path of subsidy for banks. curse that struck us as a poor option particularly under a Republican administration. But at the same time, actually, by the time we got to the end of the week, there was good news. It looks as if the new proposal from the NYSE was actually allowing a more expansive direct offering proposal. The overall amount that could be offered had gone from a minimum threshold of 250 million dollars down to 100 million dollars already, and that was being sent to the SEC for the consideration. Stay tuned folks. Direct offerings are coming soon to NYSE and doubtless NASDAQ in a low latency New York minute thereafter, once the SEC have decided on the framework. Exciting times for issuance, bad news for investment bankers, great news for issuers, fabulous news for public markets.

In memos and other exciting things PNGX the Papua New Guinea Exchange and the South Pacific Stock Exchange entered into an MOU on development of mutual capital markets which looks quite interesting. There were charity days at the Nairobi Stock Exchange and also TP ICAP. While there were also some further insights from the whole story of Bourse Scot, rather sadly it appears there that Project Heather, Euronext are owed 500,000 for technology payments, it's a sad end to a noble concept.

Nasdaq at the same time they're launching a sustainable bond network. What a good idea. The Nasdaq sustainable bond network aims to help unify data on the whole area. If only we could have the same thing I'd say the political media macro to sort out the apocalyptic morons from those analyzing what climate change there may be, and how better to impact the environment. Nonetheless, this is a great move from NASDAQ given the green bond issuance reached 117 billion dollars in the first half of 2019. None other than 47 percent year on year growth!. This free resource is very very welcome.

In the digital world Boerse Stuttgart are opening their digital exchange to all German investors. And the Arabian Bourse has received an eight figure sum to set up its crypto asset exchange which was already announced in Abu Dhabi. In other fundings DAH - Digital Asset Holdings - they have received another $35 million in a round which was backed by amongst others, the Australian Stock Exchange.

When it comes to Cum-Ex, well, German lender Warburg, they're seeking to settle the Cum-Ex tax investigation but at the same time, there seemed to be all manner of other cases that are bubbling along beneath the surface. This one is definitely going to run and run.

In the Sebi colocation case with the NSE, the National Stock Exchange of India, the SAT court was told that effectively Sebi needed to prove the basis for the disgorgement. Indeed, in one great headline from the India Business Line, that said: Colocation Case: Sebi’s Approach To Fine “Casual” National Stock Exchange Tells Tribunal... That's another one that looks to be going to run and run. All the people who deserve praise this week in the parish, it's got to be the Saudi exchange Tadawul: they listed Aramco. Aramco managed to rocket to being the world's largest listed company very rapidly and also hit its 2 trillion magic number which issuers were originally looking to achieve. That didn't get that on the IPO itself, which started at 1.7 trillion overall, but they did manage to list and garner more new money than anybody else has done in history, beating Alibaba a few years ago. And of course, Apple has now been, well, dethroned as the world's largest publicly listed company. At the same time, bear in mind that Aramco at $2 trillion is therefore larger than the next five oil majors in the world! Quite a stunning deal altogether and wonderful to see that Tadawul have been able to list it entirely effortlessly without a hiccup.

When it came to gold, a couple of stories this week, various things happening. First of all, we had in India discussion of the fact that there needs to be an electronic gold spot exchange in the vast continental country. At the same time, in Turkey a story or two that raise some questions. The report headlined by Bloomberg: Turkey Wants The World's Gold With Few Questions Added. I can't imagine that's going to appeal to the good folks of the FIAU and other money laundering agencies.

Is it being conveniently buried in order to be lost for Christmas and then forgotten? Who knows, but the London Stock Exchange has bowed to pressure from various investor lobby groups from the two dimensional Flat Earth cash organizations who are seeking a shorter trading day for London equities. Thus, the London Stock Exchange has opened its consultation to a shorter trading day, with a very significant caveat. And I quote, “there is a general sentiment that a coordinated approach by European exchanges would be required in order for a change to be effective” which in other words, means ‘there's no chance of this happening but we're going to basically disabuse these silly folks who think that somehow or other the London cash market operates separate to actually everything that's going on elsewhere around The European and global marketplace.’

In people news this week, the National Stock Exchange of India finally has a chairman. You'll recall that they lost their Chairman Asha Chawla who was a career civil servant who resigned in January, just about the time when a lot of the heat was all over the colocation scandal. They've managed to find another career civil servant to replace him. I was wondering what might happen if we managed to get someone who was actually well say, you know, a proper business person chairing an exchange in India, but of course, that's not the done thing in the Sebi regulated world. Anyway, good luck to Girish Chandra Chaturvedi, he's a former senior Indian energy ministry official who was a public interest director already of the NSE and he is now going to step up to the plate as chairman of the NSE; once the poster child of Indian electronic exchanges, but now somewhat tarnished as a result of a few recent scams. And of course, one of the things that Chairman Chaturvedi is immediately going to have to do and sort out he's in the thick of it: As a major Indian broker. Karvy has somewhat imploded across the Indian landscape and then of course, thereafter, he needs to get the NSE off the low latency ‘naughty step’ as a result of the colocation issues previously.

Over at the Multi Commodity of Exchange of India, no reason given but the CFO Sanjay Wadhwa has resigned, admittedly he was several years into his overall contract. And we got an interesting new organizational structure of the Athens exchange group, which I explained in greater detail in the Exchange Invest newsletter itself.

Of course, the big news was the confirmation that the new Georgia senator replacing the unfortunately ill senator Isakson who's had to stand on is none other than ace parishioner, Kelly Loeffler.

Over at the Swiss exchange, they have also confirmed that Thomas Wellauer is going to be appointed to the Board of SiX by the AGM and indeed will be confirmed as the new chairman by the board of directors with effect from 15th Of March 2020. He's replacing Romeo Lacher. At the same time Thomas Gottstein, CEO of Credit Suisse, Switzerland AG has been elected as a full member of the board, replacing Pierre-Olivier Bouée who has resigned.

And finally on a sad note in people news this week, my condolences. My dear old friend Martin Hollander, a long standing hedgie and derivatives dude, who was employed at one time by the Climate Exchange in Chicago: Martin, his wife and his two boys have all died as a result of being on that island in New Zealand where the volcano exploded this week. Terrible news, our condolences to all and sundry.

In technology news this week, Euronext have successfully rolled out their derivatives markets onto the Optiq trading platform. At the same time we had a fascinating story about how a fake derivatives trading network of stock brokers in India were busted by their IT departments. Absolutely fascinating story from India Today. Elsewhere, the Vienna Stock Exchange have also completed their T7 upgrades. Meanwhile also great news for LSEG: Millennium group have managed to sell a new series of wonderful widgets and apps and lines of code to the Securities Clearing Corporation of the Philippines. Elsewhere BME the Spanish exchange which of course is still under bid from SiX (and still no sign of that Euronext bid: what is going on ladies and gentlemen?) Anyway, back in the tech world, BME have launched their blockchain based collateral pledge management

In product news, of course, that Saudi Aramco IPO rather overshadowed everything. They raised $25.6 billion. In other words, something like the entire capital of, well, certainly the numbers are probably pretty close to actually LSEG today (I don't have my screen in front of me) quite incredible. That's a touch above Alibaba giving Tadawul the world record for the largest IPO. It was a day to be proud of with a smooth launch of the stock which is rapidly moving towards the 2 trillion market capitalization point that its owners had originally hoped for. Very, very good: excellent to see the parish functioning so well with such a massive initial listing.

Meanwhile, the South China Morning Post raised an interesting question as Alibaba has mega listing in Hong Kong, you'll recall they had a very successful secondary listing just the other week: is that listing the prelude to an exodus of Chinese technology stocks? Time will tell. Interesting to see of course.

Elsewhere huge amounts of discussion still about LIBOR. Nobody seems to quite know what's going on but everybody's welcoming something along the lines of SOFR. Also they think, or at least they're gonna ask their issuers. More about that probably in next week's podcast, which will be the final one before Christmas. Elsewhere, there was some good features rishon to the idea of the Shenzhen exchange, introducing their pilot for let's start that again. Elsewhere news about the Shenzhen Exchange introducing a pilot for stock options trading and the Moscow Exchange launching Russian Wheat futures

In terms of valuation of the week, ESMA have valued EU derivatives markets at 735 trillion Euros. Hmm interesting look at the analysis: big rise in venues and trading as CCP looks to be stable at about 60% of interest rate markets overall and 25% of credit derivatives. Makes you wonder who the people are with huge pockets that can manage to afford the rather, swingeing costs to the balance sheet of the other 40% of interest rate markets and 75% of credit derivatives? Equally, the fact that 25% of credit derivatives are only being centrally Counterparty cleared has to be worrying as I mean, weren’t they the cause of the problems of the last crash? Now, it makes one wonder why as much as concentrating on having CCPs provide more capital, when clearly we need the counterparties to be safer in their dealings and a significant minority of interest rate derivatives and that frightening number three quarters of European traded credit derivatives food for thought on the deed the odd sleepless night I fear.

Elsewhere next fiscal year we ought to see electricity futures coming to India, while the New Zealand exchange is partnering with the EEX to pursue carbon market opportunities. The National Stock Exchange of India, they've launched interest rate options on Government of India bonds, which is going to be very, very exciting methinks

And meanwhile, crypto exchange. Okex, they were well, we're launching options trading later this month. Well, that's a wonderful thing. And it's great to be ahead of the CME Group, but I can't help but notice, just as I couldn't help but notice when I was talking about ESMA and derivatives a moment ago, I mean, the CME has what a gazillion trillion of capital pre waterfall in an internationally renowned CCP. OKEX was, I think, a disintermediated complex functionality and a track record of abruptly canceling futures contracts while they are actually trading. I was minded to say, What could possibly go wrong? I don't wish to sound overly sarcastic, I'm just deeply concerned: this sort of thing where we suddenly get the opening of a derivatives market without a proper CCP strikes me as everything that went wrong in 2008 and everything that could deeply tarnish the crypto market. You know, the crypto exchange news, Huobi, they have abruptly terminated their attempts to be regulatory compliant in America shutting all their operations down there.

And ultimately, ladies and gentlemen, that brings us to the end of this week's brief review of the bourse business as we are galloping towards Christmas. There will be one more episode before the festive season which will be out next week. My name is Patrick L Young. Thank you very much for listening. And indeed, I wish You all a great week in markets.

Links

CBOE Global Markets Agrees to Acquire Leading European Equities Clearing House EuroCCP

PR Newswire

CBOE Global To Buy Equities Clearing House Euroccp

Reuters

Euronext Announces Binding Agreement To Sell Its 20% Minority Stake In EuroCCP

Globenewswire

CurveGlobal Continues To Innovate And Build Momentum

LSEG

London Stock Exchange Raises £20M For Derivatives Challenger Curve

Financial News

Hong Kong Expected To 'Stay Competitive' As A Top IPO Destination In 2020, KPMG Says